What’s more ghoulish than private client law. Death this, calamity that!
Sometimes private client law can work in spooky ways. One that allows the will of a dead person to be changed. Yes, you heard that right. And in doing so to save tax, support charity or hold an inheritance in a better and more appropriate way to suit a beneficiary and their family.
The trickery we speak of is a a deed of variation. But it is not really trickery and is something that is (or at least should be) considered regularly in estates. In some ways the ‘trickery’ is that the deed of variation legislation treats what is decided to happen post-death as legally having happened at date of death and as if that was in the deceased’s will. The rules also give some unique inheritance tax opportunities. A real treat and no trick.
What is a deed of variation?
A deed of variation is a document. The document must contain certain key requirements prescribed in the tax legislation. It must be completed within two years of a death.
But it is much more than just a document. It feels magical!
A deed of variation allows a beneficiary to re-write history (to cast a spell, if you will). You can be transported to the past to change the future (like a time-machine). To re-write a will as far that beneficiary’s entitlement is concerned. The re-writing allows the beneficiary to create a more appropriate way to hold their inheritance taking account of their own circumstances. It also allows the re-writing to be more tax efficient than under the will.
Not only are there immediate tax efficiencies, but a deed of variation can also set the platform for future tax advantages. The effect of a deed of variation is that the re-written history replaces the position as at date of death. That can provide some unique and valuable opportunities.
What are the benefits of a deed of variation?
The time-machine characteristic brings great opportunities and flexibility. Here are a few of them:-
- A deed of variation allows a beneficiary to re-direct an inheritance to another person or persons.
- It allows legacies to charity to be made post-death. Not only does this help good causes, but could also lead to less tax for the family beneficiaries.
- Varying a will can create a protective environment. Some situations (either because of the asset or individual(s) involved) mean it is better not to have an individual(s) owning an asset personally. It could be better held in trust with the asset protection and control qualities it offers.
- Due to the time-machine, re-directing an inheritance to another person or trust is treated as coming from the estate of the deceased. Not the person doing the re-directing. It means no need to survive seven years for the re-directed (gifted) value to be out of your estate for inheritance tax purposes. Indeed, no need to survive for any period of time. Most spookily, the person re-directing might even be dead when the re-direction is done (do ask me for more on that)!
- A variation to a trust can be of an unlimited amount. Trusts set up during a person’s lifetime are limited to £325,000 (unless reliefs apply). A trust set up with a deed of variation is not restricted by that and can hold any amount.
- The normal inheritance tax rule is that you cannot continue to benefit from something you have gifted. Not so with a deed of variation. A variation of an inheritance to a trust has the extra bonus of being outwith your estate AND that value can still be accessed and enjoyed by you.
- A deed of variation can minimise or avoid certain potential capital gains tax liabilities.
- As well as re-writing a will, a deed of variation can be used where there is no will. It can play a part in resolving difficult claims where a cohabitant dies without a will.
Deeds of variation are great, but not a reason to avoid reviewing a will!
The re-direction of an inheritance has been with us forever really. The inheritance tax benefits have been with us for decades. But the benefits could be taken away.
There have been at least two serous reviews of the ability to use a deed of variation. So, it is better to keep a will under review than rely on your beneficiaries being able to use a deed of variation to ‘sort’ any issues. Also a deed of variation reflects a beneficiary’s own circumstances, which you might not know (or they change). Your will is the opportunity to set out what is important to you. Indeed, your will can be an opportunity to avoid a beneficiary seeking to re-write certain things!
An up-to-date will can avoid beneficiary’s being spooked when they see the will and avoid them then needing to consider re-writing portions of it.
For help on estate planning and succession law, get in touch with Alan Eccles – alaneccles@bkf.co.uk / 07359001038.
“Alan is a caring and empathetic private client solicitor who is dedicated to providing the best outcomes for clients. He has the technical knowledge and professionalism to meet client needs.”
“Alan is a very articulate individual who is clearly an expert in his field.”
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